Selecting ERP Software

Healthy bottom lines and the sales of the major providers of computer systems for electrical distributors have motivated some distributors to look for new systems. But prospective buyers need to be aware that some fellow distributors have suffered purchase problems such as late delivery of systems and not getting promised software features. Many problems in purchasing computer systems can be avoided by following the tips described here.

Involve top management

Some distributor principals believe all computer matters are best left to a “computer person.” Not true. Principals must be involved. A new system will be a strategic tool, not merely a tactical one, so the leader's vision is needed to ensure that the new system will meet long-term needs. Principals must provide leadership by actively participating in the selection process. If principals are not knowledgeable about systems — a common reason for not being involved — they should read up on computer systems for distributors.

Form a team

It's bad when company principals are not involved in the selection of a system, but it's also trouble when principals do everything themselves, or assign the job to only one other person. Victory has many fathers, but defeat is an orphan. To achieve the victory of an effective system, form a team from throughout the company. This step is essential in getting people to actively contribute the ideas, emotion and time needed for success.

Define long-term system needs

To ensure that the new system is able to handle future as well as current needs, think about the company's future strategic direction and how much it's likely to grow and/or change over the next five years. Then create a list of necessary system features, such as the ability to import IDW2 data or integrate with the counter area. The team can start by viewing all the different displays of the current system, and listing its features. Then they should contact vendors of systems for distributors and get literature on those systems. This will be helpful in developing a list of additional critical features not available in their current system. Make sure the list contains features not needed now but likely to be needed in the future, as defined by the company's strategic direction. Without this list, it's impossible to judge whether a particular software package contains needed features, and impossible to compare systems.

Get written quotes

After creating the list of needed features, the team leader should ask system vendors to compare their software against the list — in writing — before any demonstrations. Always get a written, detailed quotation from each vendor — a quote that addresses the features list and addresses critical issues such as hardware expandability, the cost of installation services, the cost of an annual support contract and the cost of adding more users in the future.

Some prospective buyers opt not to ask vendors to make a comparison because they assume their list of features can be used during system demonstrations. But there isn't enough time in a demo to check out every feature, so do it beforehand. Without a comparison, it's impossible to know if software would fit the company's needs — which leaves a wholesaler vulnerable to problems that can only be discovered after the system is put into use, when it's too late.

Investigate each system

A computer system should never be selected solely on the basis of observing demonstrations. But without demos, it's impossible to judge if a system has an acceptable look and feel, and if its features are easy to use. For a demo to be really worthwhile, each vendor should be asked to demonstrate those features important to the wholesaler. Allow at least one day for each vendor.

After all the demos, the team should decide which system or systems are worth investigating further, based on each vendor's quote and the demo. Team members should then call a few references of the selected vendor(s). When calling references, ask pointed questions about the vendor's track record in helping them convert to the new system and other critical factors.

After doing reference checks, your selection team should plan on visiting at least one distributor that has installed a system that you are considering. Never arrange a visit with a distributor without first doing a telephone reference check; some distributors are so different in size and operations that a visit would be a waste of time.

Use facts to make the big decision

Financial and nonfinancial facts, not the personalities of salespeople, should be used to select the new system. The only financial fact to consider is the long-term cost of ownership — initial plus on-going costs (which can be substantial). Among the nonfinancial facts to consider are the degree to which the software fits the business's needs, the extent of vendor education and training, data conversion (from the old system), installation and post-installation support capabilities, and feedback from reference phone calls and visits. Many of these facts can only be obtained by studying each vendor's written quote.

The facts can lead to a conclusion that a slick system and vendor are not really worth the extra cost, or that a bargain system is not likely to provide the features needed over the long run. So select the most cost-effective system, not necessarily the least expensive or most expensive one.

Get a contract with specific performance guarantees

No matter how comfortable the team feels about the selected system, changing systems is so complex that many things can go wrong during and years after installation. But no vendor contract protects a wholesaler against potentially severe problems. Many vendor contracts contain vague “best efforts” terms and disclaimers of responsibility and/or contain money-back guarantees that are useless when problems occur well after going live.

A really protective contract should include such specifics as exactly what is being provided at what cost, payments tied to results, what happens if the vendor does not meet delivery deadlines or poor support during installation and what the vendor would do if post-installation support is inadequate.

The team leader should modify the vendor's contract to incorporate language that addresses the issues outlined above, and send the document to the vendor. If the vendor refuses to even negotiate the changes, find another vendor. If the vendor objects to certain changes, the team leader should ask the vendor to explain why and to suggest an alternative. Be prepared to compromise, but don't compromise too much on issues dealing with problems likely to occur or problems that would have a big negative impact if they did occur.

Get reports up front

No matter how vigorously the selected vendor advises not to create special (extra cost) reports until the system is in full use, don't wait. Have the reports created before going live — before the vendor is paid for the system.

Business owners who wait may find users were too busy to help define the reports, or that the vendor was too busy to create them. Employees may choose to live without the reports or work around them, which wastes time. When each report is first printed, someone should verify that all expected detail is included and is correct, and that sub-totals and totals are correct.

Verify data files before going live

No matter what the vendor says, it's very unlikely that all data in the old system can be cost-effectively, electronically converted to the new one; and unlikely that all files will be converted accurately. Assume some files will have to be created manually and that they will contain errors.

Plan on spot-checking each file, regardless of how it's built. Wherever possible, use control totals to verify conversion. For example, calculate the total owed from both the old and new accounts receivable file. If the two numbers don't match to the penny, an error exists somewhere. Don't delegate this job to vendor personnel; they don't know the business and can't judge if data is converted accurately.

Don't skimp on user training

Because the cost of a system often produces sticker shock, most people ask for a discount on hardware and software, and cut back on education and training. Big mistake. Today's systems are so complex that there is much, much more to learn than with the system being replaced. The only way to learn more is to spend more time in formal classes and on-site training sessions, all of which cost more than most distributors expect.

At a minimum, adequate training means that at least two people learn about each functional area (sales order-entry, warehousing, accounting, etc.), but not necessarily the same two people for each area. Only after this minimum training are employees ready to use the “train the trainer” approach — those who learn first teach others.

Meet Dick Friedman

Richard “Dick” C. Friedman is a recognized authority on information technology (IT) for distributors and manufacturers. His firm specializes in objectively helping these businesses acquire and more-profitably use IT, and has helped several electrical distributors.

He has made presentations to many trade groups, including the National Association of Electrical Distributors and has written numerous articles on selecting systems and using them more profitably. He holds a bachelor's degree in engineering from Cooper Union, and a master's in business from the University of Chicago. For more information or to send e-mail, visit www.genbuscon.com.

Electrical Wholesaling welcomes Friedman to its stable of contributing writers.